A debtor looking to file a chapter 13 bankruptcy case should know that more likely than not his income tax refund during the pendency of the case will go towards the plan.
It is rare to have a 100% chapter 13 plan, so the trustees look to increase the funding for creditors by demanding that tax refunds be paid into the plan.
To comply debtors have to provide their tax returns in a timely fashion and send refunds to the trustee. This means that as soon as you file your returns send a copy to your attorney.
If your plan calls for payments of tax refunds into the plan, the best approach is to segregate the refunds as soon as you get them to avoid the potential of spending the money.
If the money is not paid the trustee can move to dismiss your case. Alternatively, the trustee will request that you modify your plan to pay any spent tax refunds that should have gone into the plan.
You do not want to modify your plan because that means a higher monthly payment.
To reiterate, make sure you understand how your tax refunds will be treated in your chapter 13 case to avoid the case falling apart later.
